GL Limited - CIMB Research 2016-02-16: 2Q boosted by one-offs

GL Limited - CIMB Research 2016-02-16: 2Q boosted by one-offs GUOCOLEISURE LIMITED B16.SI 

GL Limited - 2Q boosted by one-offs 

  • At 70% of our FY16F, 1H16 core net profit was in line as we project a weaker 2H. 
  • 2Q16 net profit rose 34.5% yoy, helped by a one-off gain from land disposal in its Molokai property business; core net profit rose 10% yoy on lower finance cost. 
  • We remain optimistic about GL’s hotel business although its 2Q16 hotel profit was affected by weaker £ and poorer tourist sentiment after the terror attack in Paris. 
  • Potential asset montisation is a key re-rating catalyst ahead. 
  • Maintain Add call and target price of S$1.26 (25% discount to CY16 RNAV). 

■ 2Q16 results boosted by one-offs 

  • GL’s 2Q16 net profit rose 35% yoy to US$19.9m (2Q15: US$14.8m), helped by a one-off land disposal in its Molokai property business. Core net profit grew 10% yoy to US$16m in 2Q16 (2Q15: US$14.5m), due mainly to interest savings of US$4.2m from mortgage debenture refinancing (completed in Dec 14) and normalised profit from its gaming business (2Q15 experienced an extraordinary loss); the gains were partly offset by lower O&G royalty income from Bass Strait and moderated hotel earnings. 

■ Hotel profit moderated in 2Q; long-term outlook remains positive 

  • After a stellar 1Q16, GL’s core hotel profit moderated slightly in 2Q16; hotel EBITDA fell 2.3% yoy to US$25.6m (2Q15: S$26.2m), due mainly to the weaker £ (£ depreciated c.5% yoy against US$ in 2Q16) and poorer tourist sentiment on the back of the Paris terror attack in mid-Nov 2015. 
  • Despite some near-term pressure, we remain upbeat on the long-term outlook for GL’s hotel business given that London is a long-loved tourist destination and the £ is already at a 6-year low against US$. 

■ RevPAR growth beats the market, driven by hotel refurbishment 

  • In £ terms, GL’s hotel RevPAR grew 6-7% yoy in 1HFY16 (2HCY15), according to our estimate; this is compared to PwC’s 2015 RevPAR growth forecast of 2.7% for the London hotel sector. We project mid-to-high single-digit RevPAR growth in FY16, driven by higher room rates from the group’s refurbished and rebranded hotels. 

■ Potential asset monetisation could narrow discount to RNAV 

  • Management will continue exploring options to monetise its non-core assets, mainly the casino business and the Molokai property business. 
  • We note that GL may also consider selling certain hotel assets if the price is right. 
  • We estimate GL’s hotel portfolio is worth at least US$1,533m, a 33% premium over the book value of US$1,151m (Dec 15). 
  • Successful asset monetisation should narrow GL’s discount to RNAV (GL is currently trading at a heavy 48% discount to CY16 RNAV of S$1.68/share). 

■ Major shareholder buying 

  • We note that several entities that Mr Quek Leng Chan (group chairman) is deemed as having an interest in have been purchasing GL shares since May 15. 
  • To date, a total of 8.9m shares have been purchased through open market transactions, with transaction prices ranging from S$0.785 to S$0.98. 
  • Mr Quek’s deemed interest has risen from 66.69% in May 15 to 67.34% as of 28 Jan 16. We recall that Mr Quek made an attempt to privatise GL in 2005 at an offer price of S$1.25/share, equivalent to 1.0x P/BV then. 

Roy CHEN CIMB Securities | William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2016-02-16
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.26 Same 1.26